Short-sellers set sights on HK-listed mainland firms

Short-selling investors are turning away from US and Canadian markets to target Chinese companies listed in Hong Kong, Reuters reported. Short-sellers borrow shares in the hope that the share values will decline and they can return the stock to the lender at a profit. Chinese firms listed on US exchanges — in particular those that listed through a process called a reverse takeover (RTO) — have been the particular targets of short sellers over the last year, but the overall battering Chinese stock valuations have taken in the US has already eliminated much of the incentive to short stocks. “We’re moving on from the Chinese RTOs. They’ve been beaten to smithereens by this point. The game is getting harder and no longer in the US, but rather is moving to Hong Kong,” said John Hempton, the chief investment officer of Bronte Capital Management, which has shorted Chinese companies. Hong Kong authorities have objected to the implication that mainland companies listed on the Hong Kong exchange have similar problems to those listed in the US, arguing that their listing requirements are more stringent than those of NASDAQ, where most of the RTOs trade.

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